If you’re like many people in Canada today, buying a car is a major purchase. For many people buying a car is their second-biggest expense, right behind housing costs. According to a CBC report, in 2017 the average new car in Canada cost over $33,000. And unless you have that money saved up, you’ll need to finance it.
If you’ve had credit issues in your past, the thought of applying for a car loan could make you feel uneasy. And you might have questions. What is the minimum credit score for a car loan in Canada? And if your credit score is less than perfect, can you even get a car loan?
Here’s what you need to know about what credit score is needed for a car loan in Canada.
Is Your Credit Score High Enough to Get Vehicle Financing?
One of the first things to do when you’re considering applying for a car loan is to check your credit – both your credit history and your credit score.
Your credit history is a record of your financial activities based on the reports of companies and individuals who report to the credit bureau. Your credit history is used as a factor in calculating your credit score, a three-digit number that represents your “risk” to lenders.
One easy way to check your credit score for free can be to see if it’s available for free through your bank. Some banks, such as Scotiabank and the Royal Bank of Canada let you check your credit score for free. Other options to check your credit score for free in Canada include signing up with Credit Karma or Borrowell.
Once you know your own credit score you can check to see if it’s high enough to meet the car loan credit score threshold for the credit bureaus.
The Minimum Car Loan Credit Score Might Surprise You
Canadian credit scores can range from 300 to 900. The minimum credit score for a car loan in Canada is around 630.[SOURCE:https://www.autoloansolutions.ca/blog/a-numbers-game-what-is-a-good-credit-score-for-a-car-loan/ ] However, with a credit score of about 630, you’ll pay a higher interest rate to borrow money than someone with a higher credit score. The higher the score, the lower the rate. A lower interest rate means it costs you less to borrow money, and you’ll spend less on interest payments in the long-run.
It’s important to note that if your credit score is below 630, you could still qualify for a car loan through a lender that specializes in car loans for borrowers with bad credit.
Why Lenders Look at Minimum Credit Scores for Car Loans In Canada
Traditional lenders use credit scores to get an idea of the lending risk of giving you a loan. Lending risk refers to the likelihood that you will pay back the money they lend you.
However, your credit score is just one part of a car loan application. The lender might also consider things such as:
- Your length of employment
- Your debt-to-income ratio – how much your monthly debt payments are compared to your monthly income
- The amount of your down payment, or savings towards your car purchase
The minimum credit score needed to get a car loan in Canada differs between lenders. Some lenders, such as many of the banks, will only work with borrowers who have strong credit scores. Other lenders, such as in-house financing dealers or private lenders specialize in working with people who have had credit issues.
How to Get a Car Loan When Your Credit Score is Low
So what if your score is lower than the minimum credit score needed to get a car loan in Canada? Don’t despair. You have a couple of different options.
One way is to look for ways to improve your credit score. Tips include
- Pay all bills on time and in full
- Check to see you aren’t using more than 30% of your available credit. So if you have a $10,000 credit card limit, keep your balance at or below $3,000
- Have a variety of credit, including a credit card, a car loan, and a mortgage.
However, boosting your credit score takes time, and it may be at least one month or more before you see a change in your score. Another option is to work with a lender that doesn’t depend on credit scores to approve loans. For example, you could fill out an online car loan application through RightRide right now to get the ball rolling. One of our representatives will connect with you to help you get into the right car for your family and finances.
What is the Minimum Credit Score to Get a Car Loan in Canada?
Credit Scores Range Between 300 and 900. You’ll need a minimum credit score of about 620 to get a car loan in Canada
760+ Excellent Score – best rates
725-759 Very Good
660 – 724 Good
620 -659 Fair
<619 – Talk to us about your car financing options today